The return of the interest-only mortgage

Interest-only lending is making a tentative come back. Natalie Stanton looks at what's changed and asks whether you should be tempted.

There's one mortgage product that took more blame for inflating the pre-2007 housing bubble than perhaps any other the interest-only mortgage. An interest-only mortgage, as the name suggests, involves taking out a loan to buy a property, but only repaying the interest each month, and none of the capital.That keeps the monthly repayments lower, so increases immediate affordability.

In theory, you should have a plan in place to pay off the capital at the end of the mortgage term. In practice, certainly before the financial crisis, many borrowers crossed their fingers and hoped that house price and wage inflation would render the question irrelevant. That led the CEO of the Financial Conduct Authority (FCA) to describe these products as a "ticking time bomb" a few years ago.

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Natalie joined MoneyWeek in March 2015. Prior to that she worked as a reporter for The Lawyer, and a researcher/writer for legal careers publication the Chambers Student Guide. 

She has an undergraduate degree in Politics with Media from the University of East Anglia, and a Master’s degree in International Conflict Studies from King’s College, London.